Webber: It's time for Republicans to pass carbon tax

By Michael Webber

January 6, 2015Updated: January 6, 2015 8:25pm

As Republicans prepare to take over Congress, they should take a page from Bill Clinton's playbook, demonstrate their ability to govern and seize the moment to do something great for the country: pass a carbon tax.

Several prominent conservatives have advocated for a carbon tax, but generally speaking, both taxes and carbon regulation are unpopular with Republicans. Clinton faced a similar situation when he pushed for welfare reform in 1996. Ultimately, he broke with the conventional expectations of his party, reached across the aisle and achieved meaningful and much-needed reform.

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The Republicans have a similar opportunity. For a variety of converging reasons - corporate support, collapsing oil prices, the chance to create political leverage - the time is finally right to put a tax on carbon emissions. By passing such a tax, Republicans can break through the logjam of business-as-usual bickering and show their ability to implement bipartisan policies.

In the process, Republicans can use the carbon tax - a longtime Democratic priority - as a negotiating tool in a grand bargain for some of their long-standing policy priorities, such as corporate tax reform, approval of the Keystone XL pipeline and a lifting of the ban on crude oil exports.

For several years, conservative economists have floated the idea of using a carbon tax to help finance fiscal reforms like streamlining America's complicated corporate tax system. The basic argument is that a price on carbon emissions could generate revenues for the federal government that free up the headroom needed for revenue-neutral corporate tax reductions.

Expanding our energy sector's import and export capacity is another Republican objective that could be tied to a carbon tax. That expansion includes two key provisions: the Keystone XL pipeline for importing oil from Canada, and approving crude exports so domestic shale producers can find markets for their light sweet crude, which is an awkward fit for U.S. refineries.

Passing the carbon tax will make the energy import-export question easier to accept for the many Democrats who like the economic boost that the pipelines and exports would provide, but want to blunt the environmental impact. Here, the parallels to Clinton and welfare reform are especially apt, as the Republicans have a chance to "triangulate" their opponents. Republicans are often criticized for being hostile to environmental protections.

Passing a comprehensive carbon policy - something Democrats weren't able to do when they controlled Congress and the White House - would defang environmental critics while attracting Democratic support for some Republican objectives.

The timing is right, but this moment won't last. As China considers possible policy changes on carbon, the EPA is developing a widespread carbon reduction plan that is generating millions of comments and promises of litigation. The Republican-led Congress can leapfrog China and the EPA with an efficient carbon mechanism that adheres to sound fiscal policies and helps achieve conservative goals.

Meanwhile, collapsing oil prices have gutted one of the most important reasons Republicans have resisted a carbon price: concerns that a carbon policy would make energy unaffordable. Oil prices have dropped more than 40 percent in the past few months. Gasoline has dropped more than $0.75/gallon throughout the U.S. As a result, consumers can readily absorb even a steep carbon tax of $25/ton - which would raise $150 billion in annual tax revenues but add less than $0.25/gallon to gasoline at the pump.

But what about concerns that the costs would hurt domestic oil producers? They're a step ahead of us. Rex Tillerson, CEO of ExxonMobil, has already gone on the record to say that a carbon tax is preferable over cap-and-trade.

In fact, ExxonMobil's energy outlook released in December builds into its planning an assumption for implied carbon costs that hover around $80/ton. If domestic oil producers can afford it and gasoline consumers can afford it, what's to stop us from getting it done?

It's rare that so many factors converge simultaneously to give policymakers a chance to meet multiple societal goals in one fell swoop and with one simple policy mechanism. If they're smart, Republicans will seize the opportunity, and Democrats will work with them to make this happen soon. This moment won't last long.

Michael Webber is deputy director of the Energy Institute at the University of Texas at Austin.